By Brian Nelson, CFA
PayPal Holdings (PYPL) best days may be behind it. We’re not sure why there is so much consumer backlash against the company, but we think the fallout not only has impacted the company’s business fundamentals but also its stock. PayPal’s fall from grace started when rumors began to swirl about its potential interest in Pinterest (PINS), and we no longer can get behind the firm’s shares. As with Meta Platforms (META), we were burned pretty bad last year with PayPal, and while the newsletter portfolios did quite well on a relative basis during 2022, it’s hard to swallow that two of our favorite ideas just didn’t live up to expectations. In any case, PayPal’s shares are under pressure again following its first-quarter 2023 numbers, released May 8, and we’re not looking back.
Domino’s Pizza (DPZ) is probably one of the best franchise operators out there. We hope this note doesn’t travel too far because we don’t want “everyone” to know about this great pizza deal (it may not last long!), but Domino’s carry-out pizza prices are simply unbelievable. Consumers can get a medium one topping pizza for just $4.99 in the northwest suburbs of Chicago. We haven’t seen a deal like this in 20 years when Little Caesars used to sell their pizzas for $5 or so, when Blockbuster was still renting DVDs. We think the long term is bright at Dominos, and its franchise pipeline remains robust, in our view. As with Chipotle (CMG), we view Domino’s as one of the best long-term restaurant growth stories on the market today.
Monster Beverage (MNST) has been one of the best-performing stocks during the past few decades, and its shares have advanced more than 16% so far this year. On a personal level, this is probably one of the stocks I regret the most. Back in 2003, when I was playing right field for Benedictine University, one of my good friends, the center fielder, introduced me to the original Monster green can. To this day, I wish I would have bought some stock of the company, which was called Hansen Natural at that time. Shares are up over 500% during the past 10 years alone. It was a big miss on my part, but what can I say. I was still in my early 20s back then, and consumers have fickle taste. To this day, however, I still enjoy the brand.
Booking Holdings (BKNG) is one of our top ideas from a valuation standpoint. We value shares north of $3,000 each, while they are trading at ~$2,600. In the past, the company has often registered a high rating on the Valuentum Buying Index, and while we’re being patient waiting for the regional bank crisis to clear up and for Booking Holdings’ technicals to firm up, we could see ourselves adding the stock to the Best Ideas Newsletter portfolio in the coming days to weeks. Booking Holdings remains a veritable free-cash-flow generating machine, and its balance sheet boasts a strong net cash position. We think the company will make a great fit for the Best Ideas Newsletter portfolio when the time comes.
Texas Roadhouse (TXRH) is one family-friendly establishment. The company gives kids free milk, while its sweet rolls are absolutely delicious — and free, too! When it reported its first-quarter results of fiscal 2023 on May 4, the restaurant noted same-store sales growth of 12.9% at company restaurants and 13.3% at domestic franchise restaurants during the first quarter. The momentum behind its comparable store sales continued into the second quarter, too, with the measure advancing 8.6% for the first five weeks of the second quarter for company restaurants. Things are moving in the right direction at Texas Roadhouse, and the company is now debt free, having retired $50 million in debt during the first quarter. Texas Roadhouse is one for the radar.
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About the author: Brian Nelson is the president of equity research and ETF analysis at Valuentum Securities. Brian is frequently quoted in the media and has been a frequent guest on Nightly Business Report, Bloomberg TV, CNBC, and the MoneyShow. Prior to Valuentum, Mr. Nelson worked as a director at Morningstar, where he was responsible for training and methodology development within the firm’s equity and credit research department. Brian led the charge in developing Morningstar’s issuer credit ratings, developing and rolling-out one of the firm’s proprietary credit metrics, the Cash Flow Cushion. Mr. Nelson is very experienced in valuing equities, developing Morningstar’s discounted cash-flow model used to derive the fair value estimates for Morningstar’s entire equity coverage universe. Prior to that position, he served as a senior industrials securities analyst covering aerospace, airlines, construction, and environmental services companies. Before joining Morningstar in 2006, Mr. Nelson worked for a small capitalization fund covering a variety of sectors for an aggressive growth investment management firm in Chicago. Brian worked on a small cap fund and a micro-cap fund that were ranked within the top 10th percentile and top 1st percentile within the Small Cap Lipper Growth Universe, respectively, in 2005. Mr. Nelson holds an MBA from the University of Chicago Booth School of Business and also has the Chartered Financial Analyst (CFA) designation. Brian can be reached at brian@valuentum.com.
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Brian Nelson owns shares in SPY, SCHG, QQQ, DIA, VOT, BITO, RSP, and IWM. Valuentum owns SPY, SCHG, QQQ, VOO, and DIA. Brian Nelson’s household owns shares in HON, DIS, HAS, NKE, DIA, and RSP. Some of the other securities written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.
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